Launch of the 2008 OECD Environmental Outlook

I am honoured to launch the OECD Environmental Outlook to 2030 today here in Oslo. I want to thank Prime Minister Stoltenberg for this excellent initiative that underpins Norway’s commitment to the international environment agenda.

For the OECD, this is a very important occasion. Environmental issues have been rising up the political agenda in the last couple of years. Enhanced knowledge and awareness about alarming environmental trends have been highlighted by several assessments released recently. They have helped us to understand the urgency to act. Now, the OECD Environmental Outlook shows us how to act. It also shows us that tackling the key environmental problems we face today is both achievable and affordable.

The Environmental Outlook to 2030 is the result of a 4 year project built on the OECD’s economic and environmental modelling capacity, and rigorous policy analysis. It is a pathbreaking report that marries economic and environmental projections for the next few decades and provides analysis of specific policy alternatives, including both the environmental benefits as well as the costs of action. To do that, it develops scenarios on how the economic and social developments will drive environmental change in the coming decades and looks at the policies required to address the main challenges. It also looks at how different countries will need to come together to deal with a complex agenda.

The 2008 OECD Environmental Outlook addresses environmental challenges and the pressures on the environment that arise from different sectors (agriculture, fisheries, transport, energy) and selected industries.

But I must warn you: The OECD Environmental Outlook does not make for an uplifting read. It paints a grim picture of our planet in 2030 if no policy reforms are introduced. OECD identified four priority areas where urgent action is needed: climate change, biodiversity loss, water scarcity and the impacts on human health of pollution and toxic chemicals. In all of them, the consequences of policy inaction are significant. I would like to share just a few examples in the four areas:

Without new policies, global greenhouse gas emissions are projected to increase by over 50% to 2050. This could cause the global temperature to rise above pre industrial levels by a range of 1.7 to 2.4° degrees Celsius by 2050, and more than 4-6 degrees Celsius over the very long-term, leading to increased heat waves, droughts, storms and floods and resulting in severe damage to key infrastructure and crops.

Without new policies, animal and plant species will continue to become extinct to 2030 due to pressures from expanding agriculture, urbanisation, and climate change. Failure to stop biodiversity loss will result in further deterioration in essential ecosystems, as well as in the natural resource base for agro-business and pharmaceuticals industries, among others.

Without new policies, over 3.9 billion people -- that’s 1 billion more people than today-- will live in water stressed areas by 2030. Water scarcity will be exacerbated by pollution of water resources, agriculture being the largest user and polluter of water.

Without new policies, the impact on human health of air and water pollution is expected to worsen. By 2030, we are likely to see four times as many premature deaths caused by ground-level ozone and over 3.1 million people dying early because they’ve breathed in fine particulates. And that doesn’t include the health hazards resulting from exposure to chemicals in the environment and in products, where information available is still not enough to have a clear picture.

But the main message of the 2008 OECD Environmental Outlook is that solutions to the key environmental challenges are available, achievable and affordable, especially when compared to the expected economic growth and the costs and consequences of inaction. This does not mean it will be cheap or easy, but they are affordable.

By 2030, world GDP is projected to nearly double from today’s levels. Our analysis shows that it would cost around 1% of that accumulated growth by 2030 to implement a mix of policies to tackle several environmental problems simultaneously — for example, reducing key air pollutants by about a third, and limiting greenhouse gas emissions growth to 12% from today’s levels instead of 37% rise seen in the Baseline scenario.

However, while the GHG emissions would be significantly reduced against the Baseline under this policy mix, it would not be sufficient to reach the more ambitious climate change targets currently being discussed internationally. Thus, the Outlook undertook a number of simulations, including one aimed at stabilising greenhouse gas emissions at 450 parts per million (ppm) in the atmosphere.

The results found that slowly phasing in a global carbon tax could reach this more ambitious goal at a cost of about 0.5% of GDP in 2030 and 2.5% in 2050. This global tax on greenhouse gas emissions needed to achieve this would be equivalent to an additional 0.5 cents of a US dollar per litre of gasoline in 2010, which then increases to 1.5 cents in 2020, 12 cents in 2030 and about 37 cents in 2050.

Timing is crucial. We need to act now, before we pass critical thresholds beyond which we face irreversible damage or the costs of policy action increase significantly.

The window of opportunity is open – today - for cost-effective approaches towards a clean and green future. For example, the rapidly growing emerging economies will be making significant new investments in energy infrastructure and buildings in coming years. These will lock-in the fuels used and the efficiency of buildings for decades to come. So let’s make those fuels and buildings of the future as environmentally friendly as possible for the generations to come.

To keep the costs of action low, there must be a strong emphasis on the use of market-based instruments – such as water pricing, emissions trading, taxes on pollutants, waste charges, etc. Removing environmentally harmful subsidies, especially for fossil fuels and agricultural production, would be a good start. It would shift the economy away from activities which pollute and over-use natural resources. And it would save taxpayers and consumers a lot of money.

To contain costs and to provide incentives for innovation, policies should focus on pricing the “bad”, rather than on subsidising the “good”. But market-based instruments will need to be accompanied in the policy mix by other instruments – such as regulations and standards (e.g. energy efficiency standards for vehicles and buildings), investment in basic R&D, sectoral and voluntary approaches to harness industry initiatives, and eco-labelling and information approaches to enable consumers to use their market power to reward green producers.

Technological developments will also certainly contribute to the solution. We need to consider, however, that the generalised application of breakthrough technologies poses important challenges in the area of intellectual property rights which will have to be confronted.

Countries will need to shift the structure of their economies in order to move towards a low carbon, greener and more sustainable future. The costs of this restructuring are affordable, but the transition will need to be managed carefully to address social and competitiveness impacts, and to take advantage of new opportunities, like eco-innovation.

Last, but not least, we must be aware that getting it right in the field of the environment is not only about what to do and how to do it. We also need to address the question of who will pay for what. The distributional aspects will be as important as technological progress and the choice of instruments. Thus, finding the best solutions will require political will and international co-operation on an unprecedented scale.

This will include, for example, the need to work closely together between developed countries and emerging economies – especially Brazil, Russia, India, Indonesia, China and South Africa – as well as with other developing countries. The global cost of action will be much lower if all countries work together to achieve common environmental goals.

These environmental challenges cannot be solved by Environment Ministers alone. They need the political support of their Prime Ministers and of their Finance Ministers to provide a strong financial backing and to introduce market-based instruments such as environmental taxes. They also need the support of the Ministries of Energy, Agriculture, Transport, Industry and others to implement sectoral policy reforms to reduce the environmental impacts of production and consumption. The commitment of other stakeholders, including key partners in the business sector, civil society and labour is equally important. The media also play a very important role in alerting the public to the problems and solutions related to environmental degradation.

The 2008 OECD Environmental Outlook is part of a broader OECD agenda to tackle global issues. It includes a Meeting of the Environmental Policy Committee at Ministerial level next month, where Ministers from OECD and from key emerging economies, as well as from accession countries will discuss the findings of the Outlook. In June this year, we will hold our Annual Ministerial Meeting of the OECD Council, where the main topic of analysis will be the economics of climate change. We aim to develop a sound economic footing for the post-Kyoto architecture.

At the OECD, we now know that the policies to address the main environmental challenges are achievable and affordable. And we know how they can be implemented. Equally important, we also know that, to avoid irreversible damage to our environment and the high costs of inaction, we must get to work right away. The launching of the 2008 OECD Environmental Outlook constitutes yet another milestone in our continued commitment to help address the sustainability of our environment, mankind’s most important challenge.